The government risks damaging the publishing industry by applying VAT unfairly on eBooks while exempting physical hard copies from the same tax.
In an adjournment debate in the House of Commons today, Glasgow South MP Tom Harris warned that changes to how VAT is levied, which come into force in January, could stifle the recent growth in the sale of eBooks for reading on electronic devices like Kindles and iPads.
Currently customers pay the level of tax that applies in the country from where an eBook is sold. That means that those who buy a book on Amazon’s Kindle store, for example, pay the three per cent level of VAT that applies in Luxembourg. But from the beginning of 2015, VAT in EU countries must be levied in the country where the buyer lives. So British customers will see the price of books rocket by up to 20 per cent.
Tom told Treasury minister Andrea Leadsom that buyers are very sensitive to marginal cost increases. He said: “Ofcom research shows that the willingness to pay for a single book download declines steadily as the proposed price of a book download increases. The average price that respondents were willing to pay was £3.74. About 42 per cent of people were willing to buy an e-book at £5. Once VAT at 20 per cent was added, bringing the cost up to £6, the proportion of consumers willing to buy it fell dramatically to 28 per cent.”
And he added: “E-books are a British success story and have helped to drive the recovery of the UK publishing industry since the financial crisis of 2008. Consumers in the UK are already the biggest e-commerce spenders in the world, and have been fastest in the EU to embrace e-books, partly because of the huge choice of English language books, partly because of competition and choice in e-book readers, and in large part because of the price competitiveness of e-books. That has brought big new opportunities to readers, writers and publishers.
“Do the Government still accept that we should promote reading and literacy and do all in our power to widen reading and literacy? I know, of course, that the genuine answer from the Minister will be yes, but should we not therefore widen our support for print books to their digital equivalent? Are the Government willing to engage with the European Commission to hasten the completion of its impact study assessment of options to reform EU VAT rules, including those affecting VAT on e-books? Should the Government not be standing up to Europe and following the examples of France, Germany and Luxembourg by insisting on a substantially lower rate of VAT on e-books? This is one area where I would like to see a race to the bottom. I want the Government parties and my own party competing in the next few months leading up to the general election to see who can offer the lowest rate of VAT on e-books, because consumers, readers and authors, not politicians, would emerge the winners.”
Read the full transcript of Tom’s speech here. Watch the video of the debate here.